July 6, 2012

Pennsylvania Joins Growing List of States with P3 Legislation

by Steve T. Park

Pennsylvania’s General Assembly paved the way for the use of public-private partnerships (P3s) when it passed legislation on June 30, 2012, giving the Commonwealth the ability to lease transportation assets to the private sector.

The legislation, House Bill 3, provides a broad-based framework that authorizes transportation-specific P3s in an attempt to jumpstart much needed infrastructure projects within the Commonwealth. Other states have similar legislation in place, and current projects in Virginia and Florida, for example, demonstrate the positive impact private investment can have on transportation projects.

According to a 2010 study by the Commonwealth Transportation Advisory Committee, Pennsylvania needs an additional $3.5 billion per year to fully address its infrastructure needs. HB 3 attempts to tackle this enormous funding challenge by attracting private investment in large-scale assets and freeing up limited public dollars for maintenance and safety projects. Currently, Pennsylvania has 5,000 structurally deficient bridges, the most of any state in the nation, and about 8,000 miles of dilapidated roadway.

The law was approved unanimously by the Pennsylvania Senate, and passed the House 117-79, with strong bipartisan support.

P3 Board

Establishing the procedure for public and private entities to submit requests for transportation projects

Receiving solicited and unsolicited proposals for P3 projects

Reviewing and approving proposed P3 projects

The Board will consist of seven members: the Secretary of Transportation or a designee, the Secretary of the Budget or a designee, and one member appointed by each of the Governor, the President Pro Tempore of the Senate, the Minority Leader of the Senate, the Speaker of the House of Representatives, and the Minority Leader of the House of Representatives.

Solicitation Process

Under HB 3, public agencies will solicit bids for the development, financing, construction, and maintenance of transportation projects through public notices requesting proposals (RFPs). If a public entity desires to undertake a transportation project which has not previously been approved by the Board or authorized by law, it must first obtain the Board’s approval. Requests submitted to the Board may be solicited or unsolicited.

Requests to the Board may contain any project delivery methods or forms of agreement that the public agency determines are appropriate. All modes of transportation are open for consideration with one important exception: the Pennsylvania Turnpike Commission may not enter into a P3 Agreement granting substantial control or oversight over the Turnpike mainland, unless specific authority is granted through an act of the General Assembly.

Using a best value approach, the public entity will evaluate the responses it receives from the various bidders and submit a preferred response to the Board. The Board will then assess whether the project is in the best interest of the Commonwealth and the public entity. It may approve a proposed project by adopting a resolution.

The General Assembly is empowered to pass a concurrent resolution, by majority vote in both the Senate and the House of Representatives, that rescinds the Board’s approval of the project within 20 calendar days or nine legislative days, whichever is longer. If there is no majority vote within that time frame, then the project is deemed approved.

P3 Agreements

The law sets forth a number of specific requirements for Public-Private Transportation Partnership Agreements (P3 Agreements), contracts between public agencies and their private partners. Among other requirements, a P3 Agreement must contain detailed descriptions of the project and the partnership, identify a plan for payment and default, and outline the applicable construction, maintenance, and operation standards. Additionally, the term of a P3 Agreement cannot exceed 99 years.

If the project entails collecting user fees or tolls, the P3 Agreement must contain provisions detailing how the money will be collected and used. Any net profits derived from P3 projects will be placed into a special fund and used exclusively for state transportation needs.

The law prohibits any new taxes from being imposed by the Commonwealth or a political subdivision on the revenues or user fees received by a private entity pursuant to a P3 Agreement. The law further protects P3 Agreements involving real property from being subject to local realty transfer taxes, and exempts all property subject to P3 Agreements from property tax or special assessments. The law is also clear that any contractor doing work under a P3 Agreement must pay prevailing wage.

If you have questions on transportation financing and P3s, please contact Brian Walsh at 215.864.8510 or walsh@ballardspahr.com or Steve T. Park at 215.864.8533 or parks@ballardspahr.com. The authors would like to thank Jaclyn Simon and Emmanuel Brown for their contributions.

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